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SBA Loan DSCR Calculator for Business Acquisitions
DEBT SERVICE COVERAGE RATIO
1.72x
Clears the SBA 1.25x minimum
- SBA loan amount
- $4,800,000
- Annual debt service
- $777,226
- Cash available for debt
- $1,340,330
- If EBITDA drops 20%
- 1.36x
- EBITDA needed for 1.25x
- $1,056,532
- Max price (SBA $5M loan cap)
- $6,250,000
DSCR = (adjusted EBITDA − maintenance capex − your salary) ÷ annual debt service. Lenders differ on what they subtract, some also deduct taxes. Runs in your browser; nothing is sent or stored.
What DSCR means for an SBA acquisition loan
The debt service coverage ratio tells a lender how many times the business's cash flow covers its loan payments. At 1.00x every dollar of cash flow goes to the bank. At 1.25x, the SBA minimum for an acquisition, there is 25 cents of cushion for every dollar of payments. Below that, the loan is hard to approve no matter how good the business looks in the CIM.
How to calculate it
- Start with adjusted EBITDA or SDE, built from the seller's tax return, not the broker's summary. A broker's number that is 10% too high can turn a passing deal into a failing one.
- Subtract maintenance capex, the spending needed just to keep equipment and vehicles running.
- Subtract a market salary for you if the seller's compensation was added back in full.
- Add up annual debt service: 12 monthly payments on the SBA loan, plus seller note payments if the note is not on standby.
- Divide cash flow by debt service. Compare the result with 1.25x, then run it again with earnings 20% lower.
Worked example
A $6,000,000 purchase of a fictional HVAC business with $1,425,330 of adjusted EBITDA (a 4.2x multiple), 10% buyer equity and a 10% seller note on standby:
| SBA loan | $4,800,000 at 10.5%, 10 years |
|---|---|
| Annual debt service | $777,226 |
| Cash available for debt | $1,425,330 − $85,000 capex = $1,340,330 |
| DSCR | 1.72x, clears 1.25x |
| EBITDA down 20% | 1.36x |
| EBITDA needed for 1.25x | $1,056,533 |
These are the same figures as Tab 4 of our sample deal package, where every input is a live formula you can change and every number links back to its source document.
Ways to improve a DSCR that falls short
- Lower the price, or move part of it into an earnout or a seller note on standby.
- Add buyer equity so the SBA loan is smaller.
- Recheck the add-backs. Only add-backs you can prove from the tax return and ledger will survive the lender's review.
- Ask whether part of the deal (real estate, for example) qualifies for a longer term.
The number that matters most is the one you start with
DSCR is only as good as the EBITDA that goes into it. Before you run this calculator on a broker's figure, check it against the seller's Form 1120-S. Our guide shows how to reconcile a CIM with the tax return, and the glossary explains every term on this page.
Frequently asked questions
What DSCR does the SBA require?
Under SBA SOP 50 10 8.1, in effect for loans numbered on or after October 1, 2026, a first-time acquisition needs a debt service coverage ratio of at least 1.25x: cash flow must cover all annual loan payments at least 1.25 times. It is tested on historical cash flow (the last fiscal year or a two-year average), not projections. Expansion deals by an existing owner need 1.15x.
How do you calculate DSCR for a business acquisition?
Take the business's adjusted EBITDA (or SDE), subtract maintenance capex and a market salary for the owner if it isn't already in the number, then divide by the total annual payments on all acquisition debt. Lenders vary on what they subtract; some also deduct taxes.
Does a seller note count in debt service?
Yes, if the seller is being paid. A seller note on full standby (no principal or interest payments) adds nothing to debt service while it stays on standby. Rules on when a seller note can count toward the buyer's equity injection change between SBA SOP versions, so confirm the current treatment with your lender.
What is the maximum SBA 7(a) loan amount?
$5 million. Larger deals need more equity, a bigger seller note, or other debt alongside the SBA loan.
What loan term should I use?
SBA 7(a) loans for a business acquisition without real estate are usually amortized over 10 years. Deals that include real estate can run up to 25 years on the real estate portion.
Is this calculator a credit decision?
No. It shows whether a deal is worth taking to a lender. Your lender sets the final terms and decides eligibility under current SBA rules.